Answer:
Straight-Line Depreciation Method:
A five-year asset purchased for $100,000 with an expected residual value of $10,000 has an annual depreciation expense of 0.2 x ($100,000- $10,000)__$18,000_______ ' After each year, the depreciation expense reduces the depreciable basis (for example, after the first year, the depreciable basis is__$72,000____
Explanation:
a) Data and Calculations:
Asset's acquisition cost = $100,000
Residual value = $10,000
Useful life = 5 years
Depreciation rate = 20% (100/5)
Depreciable amount or basis = $90,000 ($100,000 - $10,000)
Depreciation expense for 1st year = 0.2 x ($100,000- $10,000) = $18,000
Depreciation basis after 1st year = $72,000 ($100,000 - $10,000 - $18,000)
b) The depreciation basis of a tangible long-term asset is the amount of the asset's cost that can be depreciated over its useful life. This amount is the acquisition cost of an asset, minus its estimated salvage value at the end of its useful life.
